Far too often, we come across people who have caught up on their mortgage payments only to have another emergency put them right back into foreclosure again. This may happen two or three times, each time the client borrowing money from friends of family, or taking out car title or payday loans. But without solving the real problem that caused them to fall behind, these clients run into another hardship and fail to pay their mortgage again. Then the cycle starts all over, only this time the homeowner's already ruined credit is destroyed even further. Also, their lender and the court system is much less willing to work with them after going back into default.
Obviously, your first goal if you are in foreclosure should be to stop the foreclosure process as soon as possible. But once you have been successful at stopping the foreclosure of your home, you should analyze why you fell behind in payments to begin with. Was it due to loss of job? Medical problems? Death and/or disability in the family? A difficult separation/divorce?
If the cause of the foreclosure was a loss of job and you are now caught up in payments and have a new job, then evaluating your monthly budget should be a top priority. Are you making enough money with your new job to be able to afford the mortgage payment, pay all of your other bills, and establish an "emergency fund?" If you can not establish this emergency fund, then what will you do if you lose your job again? Setting aside enough money to pay your expenses for at least a month should be your number one priority (3-6 months is even better, and should be set aside as soon as possible). Also, can you find a better job that offers higher pay and is more stable?
If medical problems were the reason you fell behind in payments and went into foreclosure, then evaluating your situation after stopping foreclosure is absolutely critical. A major medical crisis can change your life drastically and raise many important questions. Are you able to work your regular job, and will you be able to work it for long years? Can the medical issue recur, and if so, what will you do then? If you are unable to work your former job, then can you receive help from the government to provide training for a new job? Again, setting up an emergency fund should be of major imprtance to you at this time. A sudden relapse or secondary illness can put you right back into foreclosure, and, as you may have noticed the first time you were behind in payments, lenders have little sympathy for your condition if you can not pay your mortgage on time.
A death or major medical problem in your family can have much the same effect as experiencing the crisis yourself. Losing an income in your household or having to take significant amounts of time off work to care for a loved one can leave you scrambling around for money to make your mortgage payment, if you can make it at all. Once you have stopped the foreclosure, the same rules and questions apply in this situation as in the last two. Evaluate your income situation and make sure you can pay your mortgage bill, other household expenses, and save for a rainy day.
If a divorce or separation was the cause of your foreclosure, then you also have many questions to ask yourself and others after you have cured the default on your mortgage. Do you need the house now that there are fewer people living there? Is selling an option, or do you want to keep it? Are you due any extra money every month in the form of alimony, separate maintenance, or child support? You may want to consult with a family law attorney if you do not know the answers to some of these questions. However, once you have analyzed your income situation, make the effort to pay all of your bills and create an emergency fund in case something unexpted happens (and we all know it will).
In addition to the all-important emergency fund, there are a number of other changes you may want to consider. While no single change is guaranteed to prevent foreclosure, by making some necessary changes, you can protect yourself for a much longer period of time if another emergency occurs.
Are there any bills you can do away with completely? Paying a credit card, selling your new car and purchasing a used car, and canceling unnecessary services are all good ideas to implement until you have established your emergency fund.
Of the bills that are necessary, can you reduce any of them? While refinancing a car or mortgage may not be an option at this point, the potential for lowering other household bills is almost endless. Again, evaluate your budget, figure out where your money is going, and see where you can make changes that allow you to keep more of your money for yourself.
Evaluating the reasons that caused you to become a victim of foreclosure is one of the best ways to make sure you never end up in that situation again. While nothing can protect you from an endless string of bad luck and/or uninformed decisions, analyzing your current situation after foreclosure and building a cushion around yourself can allow you to keep your head above water for much longer next time there is an emergency.
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